Category Archives: Information gathering

We need to let policy makers know why selling via 3rd parties isn’t a VATMOSS solution.

This past week has seen some major Twitter and other online uproar over Patreon’s ‘not our problem’ stance on handling the new EU VAT for their users – buyers and sellers. Not helped by the fact that PWC aka Price Waterhouse Cooper, their massively expensive accountants initially gave them 100% inaccurate advice. Apparently the issue is now under review…

This isn’t the first such uproar and more than one business has effectively been bullied – by HMRC and the EU, not their customers – into hastily coming into line with the new regulations and the decree that 3rd party marketplaces are responsible.

On one hand it’s good to see organisations like Gumroad, Etsy etc taking on the VAT headache for their customers – especially given it’s apparent they were given nothing like appropriate notice that all this chaos was heading their way.

On the other hand, so many of our businesses still need a workable option for selling direct. For reasons that don’t necessarily relate to money – or not only to money.

For me as a writer, that direct contact with readers is vital to building an keeping a fanbase, and one way to enhance that relationship is by offering advance sales of new books and side projects exclusively via my website. And yes, that’s also a way of maximising my income from new releases which is also money that comes to me at once, not a month or more in arrears via Amazon etc.

I’ve seen a software developer elsewhere explaining how initially offering apps direct from his own website is an important way to establish which new ideas are worth pursuing. These aren’t suitable for putting out via 3rd parties.

I’m sure there are similar considerations for any number of other businesses.

The first tangible result of my own meeting with David Cameron last week is a meeting scheduled for the EU VAT Action campaign with the No.10 Policy Unit next week. This is something I want to raise.

It would be really, really helpful, if you could let me know your thoughts on this by Monday.

Could the EU Commission be legally challenged for basing digital regulations in 2015 on 2006 research?

A point that’s been made time and again in general terms, is how vastly different the digital world now is, compared to the situation in 2006 when the new EU VAT on digital sales regime was first being discussed.

Adam Dobay has gone further and looked at the specifics, writing an eye-opening post for the EU VAT Action Campaign Group on Facebook.

With his full permission, I’m posting his research here – and both he and I would be very interested indeed in further information and analysis by those with more detailed technical knowledge.

Similarly I’d very much like to know any informed – albeit informal – legal opinions on whether or not these regulations can be challenged as not fit for purpose or something similar.

As Adam writes –

“”A 2006 EU document is not suitable to regulate digital businesses in 2015” — research [UPDATED 01.26]
I’ve made some very basic research concerning just how vastly different the internet was in 2006 when the EU regulation resulting in today’s rules was on the table — and how surreal it is that us entrepreneurs and all the member states have to draw definitions from something this outdated.

The research was prompted by Les Howard’s article where he states “the definitions of telecommunication, broadcasting, and electronic services are found in the Implementing Regulation 2006/112/EC, arts 6-7. Rather than fret about the definitions applying in different member states, read the relevant article”.

The following is meant as a resource for the EU VAT Campaign Group as well as websites and bloggers who want to highlight differences in a variety of fields. The list is unfinished and the process of adding citations is ongoing — I am continually updating this post as I find new data from 2006 and today to compare (harder than it sounds). If anyone has knowledge of better or more relevant data, please notify me in the comments below.

Feel free to copy, quote, and use in blog posts and other publications, citing Adam Dobay, digital entrepreneur, http://www.cabbitsupreme.com as the source. Thank you!

INTRODUCTION
Concerning the digital marketplace, referring to a 2006 piece of writing in 2015 is highly erroneous. One huge part of the problem with definitions of digital products and services is exactly the significant number of ways in which the internet and digital entrepreneurship have changed in a mere 9 years.

THE INTERNET AND ENTREPRENEURSHIP IN 2006 VS TODAY

Basing regulations on how the Internet looked in 2006 is actuallyreferring to a time when:
– the number of internet users was 35% lower than today [1]

– mobile broadband penetration was 50% lower than today in the EU [2]

– the EU e-commerce market was was 66% smaller than today [11] [12]

– the very concept of “web 2.0” and social networks was in its infancy [3]

– blogging still dominantly meant people keeping personal journals online [4]

– only 5% of blogs concerned business at all[4] (compared to 8% corporate and 13% entrepreneurial blogs in 2014[5])

– 8% bloggers made any money through their blog[4] (compare today’s 17% of bloggers who earn full-time income[6])

– making money from a website almost exclusively meant displaying banner ads; blog content marketing, affiliate marketing, video ads, subscription services, membership sites, and digital products did not exist as they do today

– Youtube was less than a year old and was just being bought by Google [7]

– the concept of vlogging was in its infancy, and enterpreneurs using online video as a platform did not exist

– digital music distribution was only 3 years old and was restricted to Apple [8]

– one year before the Kindle’s debut, the e-book market was non-existent [9]

– e-learning solutions, and online courses did not exist in the sense they do today

– the concept of crowdfunding would not kick off for another 2 years [10]

– one-click digital shopping cart solutions did not exist

– digital sales solutions easily accessible and widely available for entrepreneurs did not exist
– it was not commonplace for users to buy digital products directly from entrepreneurs and small businesses
– the concept of apps for phones would not exist for another 2 years (the iPhone itself would not debut for another year)
– purchasing on mobile devices was limited to polyphonic ringtones

BOTTOM LINE
In 2006, the digital products and services that entrepreneurs sell today did not exist.

The concept of entrepreneurs selling digital products directly to their consumers without third parties did not exist.

The concept of digital microbusinesses did not exist.

The above list could go on for a long time.

A 2006 regulation is not suitable for the 2015 internet landscape.

A 2006 regulation is not suitable for digital microbusinesses.

REFERENCES
[1] International Telecommunications Union statistics, http://bit.ly/1tcwY1P
[2] ITU statistics, http://bit.ly/1CpMd9p
[3] One of many papers defining web 2.0 by Catherine Styles, http://bit.ly/1JoHzdW
[4] Pew Internet & American Life Project, http://pewrsr.ch/1C0C30n
[5] Blogconomy Stats 2014, http://bit.ly/1iTeC0H
[6] Lifehacker, 2014 http://bit.ly/1iebTdk
[7] http://nbcnews.to/1CpMoBF
[8] Natalie Klym, MIT, 2005, http://bit.ly/1BpUGYU
[9] T.D. Wilson, Information Research, 2014, http://bit.ly/15BL4it
[10] Freedman and Nutting, 2015, http://bit.ly/1pM6JqI
[11] European Commission, 2009, http://bit.ly/1LajYzw
[12] European B2C Consumer Report, 2014, http://bit.ly/1r5H3rV

Should HMRC and HM Treasury be the ones explaining themselves in court?

Let’s have a look at the Tax Information and Impact Notes published in December 2013, signed off by David Gauke, Financial Secretary to the Treasury, specifically relating to this particular area of indirect tax.

Now, there are all sorts of holes to be ripped in this particular document and its reasoning, by far better qualified folk than me. Meantime, two things catch my eye in the section dealing with VAT: place of supply and the introduction of the Mini-One Stop Shop starting p.133 of that document.

Equalities impacts. The Government has no information about the protected equality groups of any individuals who may be affected but no specific impacts have been identified for any protected equalities group.

Really? Absence of evidence is not evidence of absence and the point’s been made time and again that the smallest online businesses are a way out of benefits for the housebound, carers, the retired and the disabled. Not to mention the unemployed, who Job Centres actively encourage to use their skills to go self-employed. Using digital skills is one realistic way to do that because you can set up a business investing time instead of money.

It also doesn’t look like HMRC have learned anything from the legal judgement that’s already gone against them, as reported here, stating that mandatory online VAT filing is breach of taxpayers’ human rights. There were no exemptions for those who found online filing difficult, for any reason.

I’m guessing their first argument here would be that anyone running an online business must self-evidently be computer literate. But there’s a world of difference between running a small online business using a free plug-in to enable downloads alongside a PayPal ‘Buy Now’ button and having to manage a e-commerce system fully integrated with PayPal’s API, with all the costs that entails – and that’s before we get on to the record keeping and reporting issues.

Did HMRC ever actually look into any of this beyond making the most superficial assumptions?

Then there’s the final note on ‘Other Impacts’.

Small and micro business assessment: small businesses that provide e-services direct to customers in other member states may incur additional costs, although these are expected to be partially mitigated by MOSS.
Businesses currently unregistered in the UK who choose to register for MOSS in the UK will also have to obtain a UK VAT registration and their UK supplies will therefore also become liable to VAT.
Other impacts have been considered and none have been identified.

Really? None? I really would dearly love to see the people who set all this up explaining in court just how they went about considering other impacts and how exactly none have been identified!

And those costs little businesses may incur which are expected to be partially mitigated? How about that for vague and conditional language? Was there any actual research done here? With actual y’know, numbers? And where and who exactly did this information come from?

Because we know full well they didn’t even go as far as consulting, let alone notifying the UK’s 370,000+ registered sole traders. That’s registered with HMRC so it’s not as if they had far to go to find out who they were and there are already systems in place for notifying them of tax changes!

Well, I am not a lawyer, nor anything close, and sadly I don’t have the funds to pay anyone who is to launch any legal challenge along these lines.

So we have to carry on challenging this appallingly flawed legislation in letters to our MPs and MEPs.

And as far as that HMRC and HM Treasury impact assessment goes? You can use this particular website to register your own disapproval of David Gauke offering this appallingly complacent and ill-informed document as an answer David Morris’s written question of 19th January, asking for a comparative assessment of the level of administrative burden the EU VAT place of supply rules places on (a) micro businesses and sole traders and (b) large multinational companies.

Click through and look at the right hand side of the page. Does this answer the above question? If you don’t think so, click on ‘NO!’

How long before the first court case over VATMOSS and the new digital EU VAT?

Is it going to be one of the tiny businesses and solo e-commerce traders in the UK who are desperately trying to find a compliant solution, only to discover the best currently on offer are semi-compliant? What’s going to happen on the 1st of July when the 6 month grace period on collecting two pieces of customer location data offered by HMRC expires – and people find themselves tied into a system that can only collect one?

Will it be someone who’s read the inaccurate newspaper and media reports of that grace period and believes the whole legislation has been suspended for six months? Because it hasn’t.

Will it be someone who’s read about someone else’s cunning ‘work around’ and believed it, without checking with HMRC themselves?

Will it be someone who’s made their own judgement on their business’s level of ‘manual intervention’, only to discover somewhere down the line that HMRC don’t agree…

Will it be someone who’s decided to opt out of all the confusion by barring all sales to other EU countries, only to discover this falls foul of discrimination legislation? At best that’s a very grey area.

Will it be someone who’s aware of discrimination legislation and has decided that they are still going to bar EU sales, because they’re going to rely on the ‘unreasonable burden’ get-out clause in there. Only to discover that HMRC don’t agree.

Because personally I can see the authorities coming down hard and fast on any such argument. If they allow that sort of precedent to stand, this whole system will quickly become unworkable.

Will it be someone who’s assumed that HMRC’s definitions of what is and isn’t an electronic service covered by these regulations apply across the EU? Because they don’t.

Not that there’s any centralised way of finding out what Bulgaria, for example, have decided about the digital supply of knitting patterns by downloadable pdf.

And since HMRC have already contradicted themselves and changed their minds several times, it’s entirely possible there are people out there relying on outdated information which could cause them problems later on.

Though let’s give HMRC their due. They are at least communicating with those affected and there are resources online to find. Other tax authorities across the EU are playing catch up at best, and at worst, people in France, Germany, Sweden, Finland and the Netherlands are getting contradictory and confusing answers, depending on what whoever happens to answer the phone happens to think.

And those are only the countries I’ve seen information from. Not from their tax authorities, you understand, but from personal stories on Twitter and Facebook.

So how exactly am I supposed to find out anything definitive for myself, especially relating to countries where I don’t even speak the language. What’s the Romanian verdict on where the balance lies between personal intervention and an automatic download for a training course delivered part by webinar and part by ebook?

Will we someone prosecuted for applying an out of date VAT rate or one that doesn’t apply under the particular regional exception where their customer happens to live?

The official EU pdf detailing VAT rates comes with a very prominent disclaimer:

“The purpose of this document is to disseminate information about the VAT rates in force in the Member States of the European Union. The information has been supplied by the respective Member States, but part of it has not been verified by some of them yet. The Commission cannot be held responsible for its accuracy or completeness, neither does its publication imply any endorsement by the Commission of those Member States’ legal provisions.”

Will we see someone prosecuted in France for believing the widespread assertion that Autoentrepreneur status which bars them from levying VAT takes them out of the scope of this legislation?

Apparently the French VATMOSS portal has now changed so that Autoentrepreneurs can register which they couldn’t do up till now. I wonder how many people who tried and were told the system didn’t apply to them will have heard about this?

Will we see someone in Spain prosecuted for believing business media reports there that the same turnover thresholds apply for digital sales as for physical goods. And that’s not just a Spanish misunderstanding. It crops up time and again in queries from across the EU.

Will the first person in court be an American seller, or one from Australia, New Zealand, Canada – or anywhere else in the world – who’s decided that they’re simply not going to comply. Where does the EU have the right to dictate taxation to them? Only to discover that their own authorities have actually signed agreements to enable this sort of thing…

And onlookers wonder why small e-traders are deciding the safest thing to do is just shut up shop.

Well, there is more you can do. Check out the information on writing letters and emails here.

Do make sure to visit EU VAT Action for information, resources, calls to action and other ways you can make your voice heard!

For those of you on Facebook, there’s EU VAT Action Campaign Group – and associated foreign language groups are now being established.

What the companies who *did* know digital EU VAT was coming thought, according to KPMG

This far we’ve been focusing on the dire consequences of the new EU digital VAT legislation for the small scale traders who were never consulted or considered by the EU Commission, HM Treasury, HMRC – and just about everyone else – primarily because they had no idea this particular commercial sector even existed.

Larger companies, especially those who were lucky enough to belong to the voluntary associations and other business bodies that HMRC chose to brief, and also those who can afford to pay the sky-high fees of multinational accountancy firms were informed and indeed consulted.

You can read KPMG’s 2014 report on their readiness survey here.

Let me flag up a few key points for you.

Pricing strategy
Over 75% of businesses surveyed are considering increasing their prices from 2015.

Compliance and costs
31% – nearly one in three businesses with turnover of £50m-£100m do not believe that they will be ready to comply with the changes by 1 January 2015.

Commercial strategy
61% Of businesses with turnover of £50m-£100m are considering reducing the number of EU territories into which they sell affected products.

Education and awareness
62% Of small-sized businesses were not aware that the changes to VAT are happening.

And these are businesses who knew it was coming and could reasonably be expected to have the resources to cope.

How exactly are the smallest scale traders supposed to manage?

I have another question. Who in any kind of relevant government department would have seen this information? If not, why not?

Or do firms like KPMG just post this sort of stuff online, in the manner of someone chucking a message in a bottle out to sea? In hopes that someone somewhere might pick it up…?

Please feel free to use this in letters you are writing.

We need to convince EU & UK authorities that we exist. Complete this survey!

We very much suspect that HMRC, Treasury and other relevant departments, here and in the EU, keep telling themselves that the number of businesses badly affected by all this is too small to be significant, and thus, there’s no need to alter their plans.

We need to convince them that absence of evidence is not evidence of absence.

Please complete this survey. It’s quick and easy to do and anonymous.

Please spread word of it as far and as fast as you can. The more hard data we can gather, the stronger our case will be.

Many thanks.